Opinions
John DeGoey
BMO HighYield Corp Bond US Hedge to CAD ETF
ZHY-T
COMMENT
Nov 05, 2014
Stock price when the opinion was issued
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Don’t invest in it because it is ‘high yield’. You are investing in the worst companies that have not defaulted yet. There is more risk in these bonds. When the economy turns down, these companies will struggle. It will trade like equities. He thinks markets are much closer to a top than a bottom.
ZEF-T vs. ZHY-T. The question is credit risk. You have emerging market risk with ZEF-T and so you get extra yield. When you do the correlation of the higher yield, they trade more like an equity than a bond. ZEF-T is an equity type risk, where as ZHY-T is more like fixed income. He does not think it is the time to step into either of these.
Which fund would you recommend for high-yield bonds? You are always dealing with US bonds in this. He would probably look at the ZHY as well as the XHY. You have to remember that you are not getting the same premium for high-yield that you used to. He would rather buy a Covered Call. He is not a big fan of high-yield stuff.
BMO US High Dividend Covered Call (ZWH-T) or BMO High Yield Corp Bond US Hedge to Cdn (ZHY-T)? Corporate bonds are probably going to be riskier than covered calls. Covered calls gives you the guaranteed income and are more stable with regards to the underlying investments. The corporations are going to be giving a higher return if the market remains benign, but you are taking a risk in case we have a hike or there's a credit crunch with regards to those corporations. You don't need the hedging these days because the Cdn$ is, if anything, dropping. If you could get it with an un-hedged version, it would be better still. If he really had to choose, he would select the Covered Call.